Based on Fibonacci projections this chart has arrived at a point that could set it up for a significant decline

The Swiss Franc has gained 15% against the Yen since its mid January low. This steep rally looks at this stage to be a clear cut case of a 5 swing advance in Elliot Wave terms. I've labelled these on the chart.

These 5 swings comply with the conditions normally required for these situations i.e:

  • The correction back to 2 did not move below the low of the first swing up
  • The correction back to 4 did not move below the peak at 1
  • The swing from 2 up to 3 needs to be longer than at least one of the 0/1 or 4/5 swings

From a practical  trading point of view, the potential advantage of this type of situation is that the completion of the 5th swing often leads to a significant move in the opposite direction i.e. a correction of the whole 5 swing advance rather than just a minor correction of the last swing up from "4"

One strategic approach in these situations is to look for tools that provide some early insight into when the 5th swing may end. Fibonacci projections are one method that can lead to an entry very close to the beginning of the new downtrend. This sets up for an attractive pay off ratio on those occasions when the projections work

Yesterday's high sets us up for a potential rejection of the Fib cluster shown on the chart. This cluster assumes the 4/5 swing will be:

  • The same size as the 0/1 swing and:
  • 127% of the length of the 3/4 correction

The rejection will be confirmed if today's candle fails to move above yesterday's high.

One approach to entry strategy is to wait for further confirmation of the cluster rejection in the form of a close below yesterdays' low.

A typical strategy for the initial stop would be to place it just behind the recent peak

If entry is triggered under this strategy I'll post some follow up ideas on profit objectives